ANNUAL REPORT 2008 - Polymer Bank Notes of the World

ACCOUNTING POLICIES 1FORM AND PRESENTATION OF THE FINANCIALSTATEMENTSThe financial statements of the ECB have beendesigned to present fairly the financial positionof the ECB and the results of its operations.They have been drawn up in accordance withthe following accounting policies, 2 which theGoverning Council of the ECB considers to beappropriate to the nature of central bankactivity.ACCOUNTING PRINCIPLESThe following accounting principles have beenapplied: economic reality and transparency,prudence, recognition of post-balance-sheetevents, materiality, the accruals principle, goingconcern, consistency and comparability.RECOGNITION OF ASSETS AND LIABILITIESAn asset or liability is only recognised inthe Balance Sheet when it is probable thatany associated future economic benefit willflow to or from the ECB, substantially all ofthe associated risks and rewards have beentransferred to the ECB, and the cost or value ofthe asset or the amount of the obligation can bemeasured reliably.BASIS OF ACCOUNTINGThe accounts have been prepared on a historicalcost basis, modified to include market valuationof marketable securities, gold and all other onbalance-sheetand off-balance-sheet assets andliabilities denominated in foreign currency.Transactions in financial assets and liabilitiesare reflected in the accounts on the basis of thedate on which they were settled.With the exception of securities, transactionsin financial instruments denominated in foreigncurrency are recorded in off-balance-sheetaccounts on the trade date. At the settlementdate the off-balance-sheet entries are reversedand transactions are booked on-balance-sheet.Purchases and sales of foreign currency affectthe net foreign currency position on the trade dateand realised results arising from sales are alsocalculated on that date. Accrued interest, premiumsand discounts related to financial instrumentsdenominated in foreign currency are calculatedand recorded daily, and the foreign currencyposition is also affected daily by these accruals.GOLD AND FOREIGN CURRENCY ASSETS ANDLIABILITIESAssets and liabilities denominated in foreigncurrency are converted into euro at theexchange rate prevailing on the Balance Sheetdate. Income and expenses are converted at theexchange rate prevailing on the recording date.The revaluation of foreign exchange assets andliabilities, including on-balance-sheet and offbalance-sheetinstruments, is performed on acurrency-by-currency basis.Revaluation to the market price for assets andliabilities denominated in foreign currencyis treated separately from the exchange raterevaluation.Gold is valued at the market price prevailing atthe year-end. No distinction is made betweenthe price and currency revaluation differencesfor gold. Instead, a single gold valuation isaccounted for on the basis of the price in europer fine ounce of gold, which, for the yearending 31 December 2008, was derived fromthe exchange rate of the euro against the USdollar on 31 December 2008.SECURITIESAll marketable securities and similar assets arevalued either at the mid-market prices or on thebasis of the relevant yield curve prevailing at theBalance Sheet date, on a security-by-securitybasis. For the year ending 31 December 2008,1 The detailed accounting policies of the ECB are laid down inDecision ECB/2006/17, OJ L 348, 11.12.2006, p. 38, as amended.2 These policies are consistent with the provisions of Article 26.4of the Statute of the ESCB, which require a harmonised approachto the rules governing the accounting and financial reporting ofEurosystem operations.ECBAnnual Report2008219